Reply to this discussion of at least 450 words and each reply must incorporate at least 2 scholarly citation(s) in APA format. Any sources cited must have been published within the last five years. Acceptable sources include the textbook, scholarly peer-reviewed articles, and the Bible.
Golden parachutes are viewed as an incentive agreement that companies provide to upper management (Gaughan, 2018). The word “golden” describes the enticing compensation given to executives that are negotiated in agreements. There are various reasons why companies feel the need to adapt or include golden parachutes within their contracts. Some of the reasons for parachutes are argued to be preventive, be less desirable, an advancement for hostile bids (Gaughan, 2018). Golden parachutes are often seen as a small price to pay executives to ensure previously discussed reasons will not occur. However, before assuming that golden parachutes are all positive because of the preventive measures they offer, we will assess the advantages and disadvantages of golden parachutes.
When the golden parachute was established, it was intended to be a “form of payment to corporate officers and executives used to pay above base salary during corporate takeovers or change of ownership” (Melbinger & Wang, 2003). The parachute plan is an agreement that aids with a hostile takeover to compensate managers to protect the firm. However, a benefit of golden parachutes is that when a takeover is taking place and management feels threaten, and they will voluntarily leave. Some organizations believe golden parachutes motivate management to negotiate a takeover to ensure the stakes are higher for shareholders (Gaughan, 2018). Although bonuses and incentives are negotiated within the golden parachute, other advantages include stocks. It is argued that golden parachutes are necessary to be competitive and attract talented executives (Fich et al., 2013). Regardless of the advantages, the disadvantages must also be considered before determining if a company must incorporate them.
There are some disadvantages that are considered with golden parachutes. Some people believe that golden parachutes are associated with changing management versus the overall performance of the company. Detractors believe golden parachutes are “guaranteeing managers to pay for failure regardless of shareholder returns (Fich et al., 2013). Due to the high controversy of golden parachutes, the SEC made changes. On Jan. 25, 2011, the SEC added a section to the Securities Exchange Act to pressure investors to disclose golden parachute agreements in mergers and acquisitions (Fich et al., 2013). The golden parachutes have a moral dilemma impacting the overall utilization. It is perceived that management serves their own best interest due to the incentive instead of the organization and shareholders.
Golden parachutes are a controversial topic due to the pros and cons of the agreements. Ecclesiastes 5:10 states, “Whoever loves money never has enough; whoever loves wealth is never satisfied with their income. This too is meaningless.” Companies and managers need to self-assess when utilizing golden parachutes. If the organization is using it to attract managers without expecting them to produce, then the purpose is meaningless. However, if management is efficient with the overall activity of the firm, then the golden parachute is an additional perk to the agreement. However, firms and management must assess the purpose before agreeing to the utilization of golden parachutes.